The Year in Review: #19. Investors Lash Out

Stoneridge Investment Partners v. Scientific Atlanta has all the trappings of a great courtroom drama: sympathetic plaintiffs, an emotionally charged issue and high stakes for the future. The case pits defrauded Charter Communications investors against two suppliers, Scientific Atlanta and Motorola, that allegedly enabled the St. Louis-based cable company to artificially inflate its profits using sham transactions.

The Supreme Court, whose decision was pending at press time, will determine whether third parties, such as investment bankers, lawyers or accountants, can be held liable for the fraudulent acts of their clients under the Securities Exchange Act of 1934. The outcome of the case will also decide the fate of another group of high-profile plaintiffs--Enron investors still trying to recover from the banks that did business with the defunct energy giant.

Stoneridge garnered 30 amicus briefs from parties such as the NYSE; AARP; U.S. Reps. John Conyers and Barney Frank; and a group of 16 SEC officials, all of whom argued the case will have drastic implications either way it is decided. But the Court seemed wary of allowing private claims against third parties. In oral arguments Chief Justice Roberts expressed concern that the PSLRA circumscribes private litigants from bringing such suits. Too late, it seems, for the financial institutions that have already paid Enron investors $7 billion in settlements.